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July 06, 2008 – Comments (2)

I am back in Vancouver and some things that I am observing, condo development seems high.  There are several projects in the works that I've driven by.  I was recently looking at the housing starts data for Vancouver and last time they were this high was at the peak of our last housing bubble in the early 90s.  Housing prices were still up about 7% this past month over a year ago, but the prices are down a little from the previous month.  It is usually useless to compare month to month housing data.  Then I heard on the news that there are something like 36,000 empty condos that people have bought for speculative reasons.  I am not sure, but I think that's almost a two year normal starting supply.  We have the 2010 Olympics coming people remember how housing took off here after Expo 86.  But when we had Expo, well, my father's place was about 1.6 times family income.  That same place is about 10 times what our household income was before I went to work up north.  I have little sympathy for speculators that end up getting burned, but I do feel very sorry for young people that just really don't understand what's happening.

The other thing that happens is people buy before they sell and before the ground is even broken.  So, there will be a number of places going up for sale when people are ready to move.  A number of these condo projects need a certain number of pre-sales prior to starting construction.  I'm thinking Vancouver ends up with a 30-40% hair cut off housing prices.  By affordability standards even with that much of a hair cut Vancouver would still not be affordable, but doubt Vancouver will ever be in that 3 times household income range again.

I was in a computer store and served fairly quickly.  In the past it has been take a number a wait an hour.  This was 5 minutes.  They were still steady, but that looks like either a slow down or competition has increased and people have found other places to shop.

This one shocked me, the grocery store at 2 pm on a Saturday had isle after isle practically empty.  Saturday is the nemisis of grocery store shopping crowds.  That store usually drives me crazy on a Saturday.  I was also in Costco the week before and talk about crowded.  You can see enormous changes to consumer spending habits here.  I don't think food prices are up that much, but I suspect it is energy prices that putting the squeeze on consumers to cut costs.

2 Comments – Post Your Own

#1) On July 06, 2008 at 4:11 PM, AnomaLee (28.69) wrote:

dwot, that sounds like the Las Vegas here in the States. Do you think much of that is still being stimulated by lowered interest rates since the Bank of Canada decided to pony behind the Federal Reserve? I don't know how the mortgage process works there.

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#2) On July 06, 2008 at 10:10 PM, dwot (39.28) wrote:

I was in Las Vegas last June and it reminded me of all the development I saw happening there at that time, and also, I was in Florida in the summer of 2006 and it was crazy development happening there at that time as well.

The difference between the Canadian and American mortgage processes means that Canada will come out of this mess much stronger.  You have long term mortgage commitments by bank being funded with short term money.  It leaves the banking system the potential to be crippled for years upon years.

In Canada no one has rates guaranteed for 30 years.  We have rates guaranteed anywhere from 6 months to 5 years.  There is the odd mortgage that goes 7 or 10 years but I don't think they are insured by Canada Mortgage and Housing. I could be wrong, I've seen a number of things that have weakened Canada when I go looking.  It is very stupid really, costs go up and then lending standards become weaker.  It has happened in Canada as well, but to a lesser extent. 

But, this thing where home owners renew means that if rates go up our banks only have to deal with increased losses for a few years.  Home owners will eventually have to renew at the higher rates.

I think US banks are in for big hurting for years as once the foreclosure losses are dealt with then there will be losses from rate increases.

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